CESTAT Delhi Set Aside Confiscation, Interest, and Penalty under EPCG Imports Due to Force Majeure and Prior Duty Payment

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 02.06.2026

CESTAT Delhi Set Aside Confiscation, Interest, and Penalty under EPCG Imports Due to Force Majeure and Prior Duty Payment

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, recently delivered a significant judgment in the case of Rajdarbar Heritage Venture Limited (formerly Global Heritage Venture Limited) concerning the confiscation of imported goods, demand for customs duty, and imposition of penalties under the Export Promotion Capital Goods (EPCG) Scheme. This article provides a detailed overview of the case, the legal issues involved, and the implications of the Tribunal’s decision.

Background of the Case

Rajdarbar Heritage Venture Limited was engaged in the hotel and hospitality sector. Between 2007 and 2009, the company obtained 27 EPCG authorizations from the Director General of Foreign Trade (DGFT) to import duty-free capital goods for constructing a hotel in Gurugram, Haryana. These imports were made under 55 Bills of Entry, with the company executing bonds and bank guarantees as required by Notification No. 97/2004-Customs.

However, due to delays in hotel construction and withdrawal of financial support by creditors and banks, the company faced proceedings under the SARFAESI Act. The Debts Recovery Tribunal ordered the auction of the imported capital goods and hotel premises in 2011, before the export obligations could be fulfilled.

Departmental Action

The Directorate of Revenue Intelligence (DRI) alleged that Rajdarbar Heritage failed to meet its export obligations and initiated action to recover eight times the duty saved, as stipulated in the Notification and import-export policy. The department encashed bank guarantees worth Rs. 5.94 crore to recover the duty foregone and issued a show cause notice demanding customs duty of Rs. 5.07 crore with interest and penalties under the Customs Act.

Key Legal Issues Examined

The Additional Director General (Adjudication) framed five central questions:

1. Demand of Customs Duty: Whether the duty foregone is recoverable under the Notification and the executed bond.
2. Interest Liability: Whether interest is demandable under section 28AA of the Customs Act.
3. Confiscation of Goods: Whether the imported goods are liable to confiscation under section 111(o) for non-fulfillment of Notification conditions.
4. Appropriation of Bank Guarantees: Whether the encashed bank guarantees should be appropriated against the liability.
5. Imposition of Penalty: Whether penalty under section 112(a) and (b) is imposable for goods liable to confiscation.

Tribunal’s Analysis and Findings

1. Export Obligation and Force Majeure

The Tribunal noted that the company lost control of the imported goods due to the auction ordered by the Debts Recovery Tribunal, a situation beyond its control. The company had also made partial exports through group companies, as permitted up to 50% by the Notification. The Tribunal recognized that paragraph 4 of the amended Notification allows for waiver of export obligations in cases of force majeure or unforeseen circumstances.

2. Interest and Penalty

The Tribunal relied on precedents (including Bombay High Court and CESTAT decisions) holding that when duty is paid before the show cause notice and the export obligation becomes impossible due to circumstances beyond the importer’s control, interest and penalties should not be imposed. The Tribunal found that the department had already encashed the bank guarantees before issuing the show cause notice, and thus, interest and penalty were not justified.

3. Mens Rea and Penalty

It was emphasized that mens rea (intent to evade duty) is a necessary requirement for imposing penalties under section 112 of the Customs Act. The Tribunal found no evidence of mala fide intent by Rajdarbar Heritage, as the failure to fulfill export obligations was due to external factors.

4. Confiscation of Goods

Given the circumstances, the Tribunal held that the goods could not be confiscated under section 111(o), as the non-fulfillment of export obligations was not due to any deliberate violation.

Final Order

• Confiscation of goods under section 111(o) was set aside.
• Levy of interest and imposition of penalty were set aside.
• Confirmation of demand for customs duty was upheld, as not contested by the appellant.

Implications of the Judgment

This ruling clarifies that when an importer under the EPCG Scheme is unable to fulfill export obligations due to force majeure or circumstances beyond their control, and has already paid the duty foregone, interest and penalties may be waived. The decision reinforces the importance of considering bona fide conduct and external factors in adjudicating such cases.

Conclusion

The CESTAT Delhi’s decision in the Rajdarbar Heritage case sets an important precedent for EPCG Scheme importers facing unforeseen challenges. It underscores the need for a balanced approach by authorities, taking into account genuine hardships and the timely discharge of duty liabilities.

Source: CESTAT Delhi

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